| [1] Definition |
| - When the Seller acquire export license, the seller should make L/C transaction greement
with foreign currency exchange bank based on the sales contract or the offer sheet
created with the buyer and present the import L/C to establish L/C. |
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[2] Basis of opening |
| - When a seller and the buyer choose payment transaction method as L/C method, this is the basis to open a L/C. |
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[3] Opening procedure |
| (1) Import Contract(Offer sheet) |
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1. For domestic use import: Either attach a domestic agency's offer sheet or the details of foreign agency to receive import license.
2. If under a certain amount or if it is the material to acquire foreign currency the procedure is not necessary |
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| - Documents required for application |
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| (3) Transaction agreement for L/C |
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| - The details for agreement |
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1. Payment confirmation for the importing goods
2. service fee to open L/C and all the incidental fee to open up L/C
3. security on borrowing the import cargo and the right to disposal
4. handling matter with the unclear, injustice items on the shipping documents
5. waiver due to mails or telegram. |
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| (4) Request for L/C Opening or Request for L/C opening |
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| - Documents required for application |
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[4] Documents required for opening |
(1) If the important contract or offer sheet(is as per offer No.~)
(2) application for commercial letter of credit
(3) commercial letter of credit agreement
(4) import licence (I/L)(If needed)
(5) Security borrowing certificate
(6) Insurance certificate (CIF, CIP terms are excluded)
(7) other necessary documents (Security certificates etc.) |
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[5] Things to be cautious when opening L/C |
| (1) Directly related to L/C |
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- It is good not using a beneficiary, applicant's company name, address and name
in shorten word.
- For the L/C amount, it is good to use numeric numbers and words together
(US$39,600(Thirty Nine Thousand Six Hundred US dollars Only)). And if there expressions such as 'about, circa' or anything similar to those in front of the amount, acknowledge more or less within 10%.
- By marking available amount of credit, issuing bill of change exceeding this amount
is not possible.
- When marking (S/D, Shopping Date), (E/D, Expiry date) and offering period make sure
they are easy to understand by marking month in wording (30th September 1993 or 10. DEC 1993) and when there are expressions such as "to, until" in front of the
dates, the date is also included.
- When not marking presenting period : In uniformity, 21 days after the shipping
documents are issued is regarded as Presented Date, and those documents exceed 21
days, they become Stable B/L and face rejection. |
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| (2) Things about bill of exchange |
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| - Bill of exchange issuing amount: Generally it should equal amount (for 100% Invoice
value) with the Invoice and not exceed the face value of L/C amount however,
mediation service fee, inspection fee, counselor invoice service fee and interest items
are exclude. (Grains, minerals are acceptable under 100% fixed rate--for 95% Invoice
Value) |
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-Sight Draft - at sight
| -Usance Draft |
- 90days after sight, 90days after B/L date.
- 90days sight, correspond with B/L date. |
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| - Tenor : Needs to match with I/L but there are Sight Draft and Usance. |
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| (3) Things about shipping documents |
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| - Must specifically mark all the requiring documents, number of copies and the shipping
documents. |
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1. Basic documents : Bill of Lading, Commercial Invoice, Insurance Policy
2. supplementing documents : Certificate of Origin, Packing List, Consular Invoice and Inspection certificate. |
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| (4) Things about shipping goods |
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- When the packing list of goods is complicate : Only write down representing
commercial description and mark other as 'Details as per Offer No~'.
- Price term must be indicated and the amount has to be consistent with L/C amount.
- When there is no mention about Partial Shipment and Transshipment: In this case, it would be safe to interpret that the Partial Shipment is allowed but
Transshipment isn't (Mark as 'permitted or Allowed' and 'prohibited or not permitted') |
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- It requires with a country of importer and depend on the import goods or on
transaction method. Generally, the L/C applicant (Buyer) insert this clause without
prior consent of the beneficiary (Seller).
- A beneficiary may request the applicant about all the obscure expressions or the items
that are impossible to execute to either change or delete.
1. document of transport |
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<1> Invoice--This is a document that approve to the buyer of the Seller executed all
the export terms lawfully. Unlike a bill, B/L and insurance policy, it doesn't represent the right of appeal.
<2> Insurance policy--If importing price is CIF term : Make sure the coverage
amount and coverage condition (Free from Particular Average, With Average, All Risk etc.).
If it is FOB term : Indicate 'Buyer's Insurance'.
<3> Bill of lading(B/L)-- Except some special condition according to UCP, the
following wordings are generally used.
Ex)-full set of clean on board bill(s) of lading, made out to the order---- marked freight---and notify accountee.
<4> Packing List, Certificate of Inspection etc.-- These are required by the applicant
if necessary but sometimes, it is a must documents under the condition import
permit requirement. |
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2. shipping and arrival port--It must be identical to the port indicated on the import
license. If the shipping port is indicated as European ports per the license: It can be
nominated within the I/L range.
3. Appointing vessel --Mark if it is a special request of a buyer to appoint a vessel. That
is, when the price term is within the F group (FCA, FAS, FOB) then the right of
appointment of a vessel is with a buyer but if the price term is within the C group
(CFR,CIF, CPT, CIP) then a seller can appoint a vessel.
4. Whether the payment method, shipping port and arrival port are consistent to the contract.
5. Whether the goods, standard, unit price, country origin and price terms are consistent to the contract.
6. Whether the shipping date and validity period are consistent to the contract and if the shipping date is within the validity period.
7. Whether the requesting amount is within I/L range and if the currency is acknowledged.
8. Responsibility for Less Charge |
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- Less Charge is, when a seller process Neg, a purchasing bank pay its own capital to the seller and receive payments from opening bank.
- If the opening bank make payment to the purchasing bank exceeding the said period or pass through third bank (Reimbursing Bank), additional foreign currency service fee developed by this cause is to be impose to the seller and this is called Less Charge.
- Generally, those Less Charges burden by a beneficiary (Seller) could develope into a dispute between L/C transaction parties therefore, a very clear indication is essential. |
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- If burden by a beneficiary---For account of beneficiary
- If burden by a applicant---For account of accountee (Applicant)
- All banking Charges outside USA are for beneficiary's account |
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| 9. Shipping documents presenting time |
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- It is normally scheduled for within 2 weeks and if it exceed 21 days from the issuance of shipping documents, and as long as there is no more or less clause for delay documents, it will be considered as a Stale B/L(Document) causing a factor for the payment rejection.
- If possible, using [Stale B/L acceptable] sentence is recommendable and sentences such specifically written such as [Documents presented later than 21days after the date of the issuance of the transport documents acceptable.] are required.
Ex)-Documents to be presented for negotiation within10days after the date of issuance of the transport documents. |
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- If permitting assign : Make clear whether permission is up to overseas.
Ex)-This credit if transferable in USA only. |
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| 11. Permission for T/T Reimbursement |
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- If a transaction is large : The Telegraphic Transfer Reimbursement might work against a seller therefore, a detail review for the permissions are a must.
Ex)-Telegraphic Transfer Reimbursement is allowed
- When a purchasing bank sent a reimburse request to a reimburse bank using telegram instead of mail: As much as the mailing date, a buyer is ultimately responsible for the interest. |
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- In case with Restricted Credit which limites purchasing bank, in case purchase was made through a corresponding bank without asking for a consent of purchasing bank, it is a factor for unpaid.
Ex)-Negotiation under this credit is restricted to the advising bank only.
- If a nominated purchasing bank allows the 1st purchase through a corresponding bank this becomes nomination release therefore, a opening bank has to right to intervene. |
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| 13. If permitting third parties' documents when processing Intermediary Trade |
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- In case with Intermediary Trade, there must a expression that a shipping document appointed third parties as a consignor is approval.
- It is recommended to use [Third party documents] sentence and as [The transport documents indicating as the consignor of the goods a party other than the beneficiary of the credit acceptable.] wording are required. |
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- In case with Bulky Cargo :As long as there is no more or less clause and even if partial shipment is not allowed, amount of bill issued that doesn't exceed L/C amount 5% tolerance is acceptable.
- Not acceptable when good's quantity is indicated or if the goods are marked as individual goods.
Ex)-Tolerance of 5% more or less in amount and quantity is acceptable. |
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[6] L/C opening method |
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- Prepare 1set of L/C application. Dispatch 1original and 1 copy to a advising bank and 1 copy to a settling bank together with reimbursement request.
- On this L/C, a autograph signature by a person with the right to signature at opening bank is a must. |
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| <1> Opening by short cable |
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| - Inform to advise that a L/C is opened so that a beneficiary to prepare for exporting. Insert "Details to follow" sentence, and send original copy of L/C using mail confirmation. A Seller Nego and ship goods according to this orignal document. |
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| <2> Opening by full cable |
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- A L/C sent by a opening bank to a advising bank as identical as original L/C using Telex.
- This kind of L/C is considered as a original L/C since the copy contain the exact contents as the original one. When using full cable, the opening banks no longer sends the original L/C and about 80% of L/C that are currently used through out the world is using this method.
- One negative point of this method is that there is a higher cost with Telex although
it prevents any mistranslation by the advising bank. |
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| (3) Opening by Swift (society for worldwide inter-bank financial telecommunication) |
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- SWIFT : It refers to a document transposition system by EDI method. EDI : Together with telecommunication and computers, this method is consider to be a revolution in telecommunication method which has "Security maintenance" unlike old cables and fax method.
- Documents transportation structure using this method: Both transmission and reception organizations are suppose have this SWIFT machine and it requires above average skill to operate or maintain the machine.
- L/C opening by SWIFT: Format of L/C is standardized and coded as bar Authenticator Key. Same as a Test Key, it doesn't use repeated alphabet using 16 code with 0~9 basic numbers, A~F and composite with 16 digits passwords. |
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Trade Helper 
Ex-Import Procedure(to Way of Payment)
Export-Import procedure according to the Irrevocable Documentary Credit method
Opening L/C
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